Sources: Cisco May Stop Investing In VCE Joint Venture With EMC, VMware

Cisco Systems is considering ending further financial investment in VCE, the converged infrastructure joint venture with EMC and VMware in which it owns a 35 percent stake, sources familiar with the company's plans told CRN this week.

EMC, which owns 58 percent of VCE, may absorb VCE into its federation of subsidiary companies, which includes VMware, Pivotal and RSA, the sources said. VCE is not currently part of the EMC Federation.

VCE executives told top partners at a meeting last month "not to be surprised" if there is a change of ownership but said such a change wouldn't affect the technical or architectural roadmap for VCE, sources privy to the discussions told CRN.

Several VCE partners have also told CRN recently that EMC has taken on a much more active role in Vblock sales discussions in recent months.

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"EMC seems to be in the driver's seat more than it has been in deals we've closed in the past," said one VCE partner, who spoke on condition of anonymity. "EMC is clearly calling the shots and managing the flow of deals."

[Related: VCE Rolls Out Three Vblocks And Cloud Management Tools For Cisco, VMware Environments]

Cisco isn't expected to get out of VCE entirely, though. Sources said it will keep its stake in VCE, and EMC will continue to include Cisco UCS servers and switches in its Vblock converged infrastructure products.

Vblocks also feature EMC storage and VMware virtualization software, and VCE handles product configuration, integration and support.

It's not clear when Cisco and EMC will make these moves, as the details are still being worked out, sources told CRN. The sources said they're expecting an announcement around the end of the calendar year.

Cisco has invested around $716 million in VCE so far, including $185 million in fiscal 2014, the San Jose, Calif.-based vendor said in its July 10-Q filing. As of July 26, Cisco had recorded cumulative losses of $644 million from VCE.

A Cisco spokesperson told CRN, "We are not pulling out of VCE" and said Cisco remains "financially committed" to the company. "VCE customers and partners can be assured that they have the full commitment of Cisco and EMC going forward," the Cisco spokesperson said.

An EMC spokesperson declined to comment on whether the Hopkinton, Mass.-based vendor is planning to add VCE to its federation of companies. "EMC, along with Cisco, is fully committed to VCE, its customers and partner ecosystem," the spokesperson said. VCE declined comment.

EMC has contributed $1.25 billion in funding and $17 million in stock-based compensation to VCE, according to its June 10-Q. As of the end of June, EMC had recorded cumulative losses of $956 million from VCE.

NEXT: VCE Has Been Thriving Despite Competitive Tensions

Rumors of VCE's demise have been around almost since the vendors unveiled the joint venture in 2009. The VCE breakup chatter increased after VMware beat out Cisco to acquire prized software-defined networking startup Nicira in 2012, setting off tensions between the once-tight partners that have continued to escalate.

One big bone of contention in VCE has been software-defined networking. VCE anointed Cisco's technology -- called Application Centric Infrastructure -- as the default for Vblocks last September. VMware's competing NSX technology runs on Vblocks, but VCE doesn't support it directly.

Despite the tensions, VCE Vblock sales have continued to grow over the years. VCE said Vblocks were on a $1.8 billion run rate at the end of 2013, though the company hasn't updated that figure since.

VMware CEO Pat Gelsinger waxed effusive about VCE at Nexenta's OpenSDx Summit in August. "From our perspective, the [VCE] partnership has been extraordinarily successful," he said at the event. "We expect the partnership to continue to grow very rapidly."

On Monday, VCE rolled out three new Vblocks along with cloud management software that connects Vblocks to Cisco and VMware cloud infrastructure, as well as "technology extensions" that let Vblocks use EMC Isilon storage and Cisco UCS compute resources.

VCE, which so far has only sold VMware server virtualization, is also planning to give customers the option of using Microsoft Hyper-V instead, sources told CRN.

VCE Vblocks were once rigid configurations with little room for customization, but by adding new options for customers, VCE is signaling that it's reached the next stage of maturity as a company.

Some partners believe if Cisco does stop investing in VCE, that won't necessarily be a bad thing, as it could help defuse the competitive tensions and allow VCE, as a company, to operate more smoothly.